The Apple Pay Revolution: How Will It Impact Omnichannel Retail?

7/28/2015
Apple is at it again – seeking to disrupt an industry. Just when retailers were trying to get cozy with Apple Pay digital wallet payments, the disrupter is upping the ante with a new service that electronically supports store-issued credit and debit cards, as well as brand-related rewards programs. Besides being a new payment alternative for consumers, the new service is primed to impact retailers' omnichannel strategies and advance the digital shopping experience.

The electronic payments landscape
Introduced last October, the Apple Pay digital wallet stores users' debit and credit card numbers and enables restaurant and retail guests to pay for orders via their mobile devices. Via near-field communications (NFC), the service enables secure payments through contactless payment terminals that support Apple's iOS platform.

Apple Pay is not the industry's first mobile-enabled electronic payments system. Others include Google Wallet, Softcard and PayPal. And alternative options abound, such as:

Android Pay. A new offering from Google, Android Pay enables Windows mobile users to conduct tap-to-pay payments, eliminating the need to enter a password or PIN. Like Apple Pay, it will also integrate retailer loyalty programs enabling users to earn reward points.

Visa Checkout. The Visa Checkout digital wallet stores consumers' Visa payment cards, as well as other provider products, and shipping information. As shoppers click on the app's Visa Checkout button upon completing their order, information is electronically populated, orders placed and payments instantly processed.

CurrentC. Provided by the Merchant Customer Exchange (MCX) CurrentC is an invention of the consortium, which includes various retail powerhouses. The consortium's forthcoming mobile payment app will enable users to securely pay for transactions, while saving and earning loyalty points across participating merchant loyalty rewards.

The battle for share of digital wallet is on. In the early going, there are no clear winners as adoption by consumers and retailers grows. Apple Pay could be the catalyst that turns the tide. In fact, some industry observers credit Apple's introduction as giving mobile payments the instant legitimacy it needs to go mainstream.

Apple Pay presents an intriguing value proposition. Its flexible platform will continue to evolve, setting – if not raising – the bar for the future of electronic wallet capabilities. At the core of their value is a new module that will not just store but also leverage store-branded credit cards and related rewards programs. Apple claims that the service will soon be available in more than 1 million locations across the U.S.

Opening the data floodgates
Apple is attempting to bridge the online and offline retail worlds as never before. Retailers gain a streamlined way to track transactions and in-store payments. It also arms brands with the data needed to offer and manage their loyalty programs, as well as generate personalized offerings and promotions based on customer-specific behavior – something that isn't available through credit cards alone.

For retailers such as Kohl's Department Stores, for example, a connection between Apple Pay and its Yes2You Rewards program enables customers to choose how they want to pay, whether using their Kohl's Charge or Yes2You Rewards loyalty points. This provides shoppers with payment innovation, flexibility and security, as well as a streamlined, convenient customer experience.

Retailers that embrace these loyalty applications will enjoy a flood of data collection opportunities. As the retail industry, and fashion segment as a whole, becomes more digitally driven, brands are driving new insights into their operations. They are experiencing data inflows at an unprecedented volume, speed and velocity. This information is both structured and unstructured, as they consume data from sources, such as social media, websites, mobile devices and other digital sources.

What remains unclear is how or whether Apple will share big data information with retail counterparts, specifically demographic data. As long as there is tight integration between the payment platform and retailers' networks, both entities will be primed to track consumer spending, which will clearly lead to deeper consumer insights.

Retailers strive for a seamless, end-to-end shopping experience – regardless of the digital customer touch point. By adding Apple Pay to the mix, all data can be tracked back to a common database where both Apple and the brand gain a single view of pricing, promotions and customer payment behavior. This demographic data can boost analytics and strengthen personalization strategies needed to truly advance on customer loyalty objectives that drive sales.

Impact on store layout and operations
What effect do the new digital payment options have on hardware requirements? Rather than focus on enhancements to traditional point-of-sale (POS) configurations, Apple Pay offers an opportunity to transition to a "point-of-purchase" model.

Store layouts will undergo significant changes as brands arm associates with mobile devices that support Apple Pay and provide for embedded digital scanners and e-receipts. No longer requiring an island of POS terminals, an evolving digital omnichannel checkout model is transitioning toward a guided, mobile-equipped, associate-based experience. This approach opens precious floor space that can now be dedicated to revenue-generating displays, or "digitally enhanced pods" that feature digital signage, tablets or other smart technology, and encourage interaction and clienteling between associates and shoppers.

Potential benefits aside, retailers still struggle with the fact that there are mandatory upgrade costs to accept Apple Pay, as well as other digital payment options. For example, the industry continues its preparation for the upcoming Europay, MasterCard, Visa (EMV) Mandate. A standard created by the three card issuers, it involves a five-year process requiring retailers – among other industries – to implement solutions that accept and process chip-enabled payment cards. Unlike magnetic stripe-based cards, EMV-enabled cards have embedded microchips that authenticate the card and process transactions. The next EMV milestone, the Liability Shift Mandate (effective Oct. 1, 2015), requires companies to be compliant with EMV guidelines. It's been reported that retailers that don't meet those benchmarks will be responsible for any credit card fraud committed in their stores.

One way to ward off the danger of EMV non-compliance is the adoption of digital wallets, specifically Apple Pay. While retailers are already digging deep into their IT budgets for EMV remediation, NFC modifications may be included within standard hardware upgrades, depending on vendor partner solutions.

Another area where brands could slash costs is in the potentially low transaction fees associated with the digital wallet. Based on early reports, Apple negotiated with American Express, JP Morgan Chase, Citigroup, Capital One and Bank of America to conduct Apple Pay payments as card present transactions, a practice that slashes the higher fees often associated with dreaded "card not present" transactions. In fact, industry observers estimate that card issuers will pay approximately 0.15 percent of an Apple Pay purchase. The reason? According to Digital Transactions News, a guarantee by Apple that a tokenized and biometrically verified transaction is "good," as it eliminates the risk too often found in card-based transactions,

While the industry fleshes out the details, the verdict is in – digital payments are here to stay. The onus is on retailers and vendors to educate consumers in ways that will encourage adoption. By partnering with Apple Pay, and bringing aboard store-branded credit cards and related loyalty programs, retailers are primed to improve their omnichannel strategies across the consumer's entire shopping journey.


Mark Fodor is vice president, supply chain & digital commerce at Capgemini, a global provider of consulting, technology and outsourcing services. Andrea France is principal, fashion at Capgemini.
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